Lombard Street

Two Scribblers on Social Change

Madmen, Intellectuals, and Academic Scribblers – The Book Forum

“Ideas, unless outward circumstances conspire with them, have in general no very rapid or immediate efficacy in human affairs; and the most favorable outward circumstances may pass by, or remain inoperative, for want of ideas suitable to the conjuncture. But when the right circumstances and the right ideas meet, the effect is seldom slow in manifesting itself” — J.S. Mill

On January 17 at the Cato Institute, Edward Lopez and Wayne Leighton presented the argument from their new book that it is when madmen in authority, academic scribblers, and intellectuals recognize circumstances favorable to the ideas that they market, that policy changes, for good or for bad, by evolution or by revolution. While an economist who sees politics without romance at first expects that bad law can only get worse, economists with romance see that when entrepreneurs sell good ideas to the right people at the right time, government is forced to play by better rules.  

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The Muddled, Puzzled, Brilliant Mind

What we think of as behavioral disabilities can be seen as part of a cognitive profile of strengths and weaknesses that make individuals  sometimes more, sometimes less well-adapted to the social world than individuals with a “normal” cognitive profile (if such a thing exists at all).

Tyler Cowen made this case for autism, and something Hayek said leads me to think that the case can be made for a certain type of mind that he characterized himself, and others, as having, and to which he attributed his and these others’ contributions to scholarly knowledge: the mind of “the puzzler,” or what he says might equally well be viewed as “the muddler.”

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The Chocolate Enchilada

Henry didn’t think it was a big deal but Al and Ivan insisted it was. “Who thinks of putting chocolate sauce, peanut-butter-coated sprinkles, Sriracha sauce, and marshmallow sauce on a tortilla and creating a delicious, ‘traditional,’ American-Mexican dessert?” Ivan wanted to know. “Not just anyone.”

“And remember that time Henry was running for class president, and instead of giving a speech he showed off by swallowing the mouthpiece of his tuba at the podium?”, Al chimed in. “Not just anyone thinks of doing that.”

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Please Don’t Be Less Productive!

Tim Jackson is wrong. Jackson, professor of sustainable development, wrote an article in the NYT calling for people to be less productive: we can get more of the things in the unproductive sectors, like teaching and healthcare; we can avoid unemployment; and we can feel satisfied doing meaningful work. Unfortunately, Jackson’s logic is pretty bad. Here’s why.

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The Emergence of Political Central Banking

Can central banks be simultaneously empowered in an effort to control monetary and financial crises and constrained against abusing its powers?

A common answer is that it can be if subjected to constitutional checks and balances: e.g., the gold standard, in various forms, as a device to limit the central bank’s ability to expand the money supply; legislated mandates on the central bank’s goals and policy instruments, such as a mandate to stabilize nominal GDP; legislated restrictions, such as a prohibition on the central bank’s authority to purchase bonds directly from the fiscal authority.

But although we have seen these constitutional constraints in place in numerous times and places, a tamed or tethered* central bank has always been an elusive creature. 

Political economy has pointed sporadically and sometimes persuasively to mechanisms to explain why these constraints fail. These mechanisms attempt to explain the emergence of political, centralized, expansionary central banking.

But these mechanisms do not seem to fully explain why the constraints did not fail at the start, or how political agents succeeded in evading the constraints.

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The Death of a Wheat Board

Canada’s lawmakers signed legislation to abolish the Wheat Board several months ago. The legislation took effect at the beginning of this month (August).

The Board had a monopsony on wheat sales, presenting itself as the only option for  wheat farmers to sell through. It arose during the Depression era as a vehicle for raising the price of wheat.

 What led to the liberalization?* It is runs contrary to the economist’s usual prediction that regulation gets more entrenched as long as the regulated businesses have a strong influence on the regulators. More specifically, in the case of agriculture, the economist Bruce Benson once argued that the reason supply management agricultural policies in Canada were more extensive in Canada than in the United States was that farmers in Canada had a lower cost of organizing and exercising political influence; so they received a higher per-capita transfer of wealth.   

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Ninja Arbitrage

A friend does well for himself by doing good for society — but he tends to think his work harms society. Society would be worse off if faulty economic analysis eroded my friend’s self-respect and led him to abstain from his line of work out of a misplaced concern for the welfare of society. 

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Breaking the Italians’ Shopkeeping Cartel

A law that restricts the hours a business can stay open makes it possible for the owners to work less but make the same money. They don’t have to fear that customers will go anywhere else. Customers suffer inconvenience, though, and entrepreneurs who would gladly work at inconvenient hours also lose.

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Merkel to Sarkozy: ‘Please accept this teddy bear’

The WSJ reports that Angela Merkel took a measure to turn conflict with France’s PM, Nicholas Sarkozy, into a more cooperative relationship (if perhaps only a marginal change):She gave Sarkozy’s wife a teddy bear in congratulations for her new baby.

The article (link above), about conflict between European leaders, is fascinating throughout.

‘Danger on the Exchange’

Eugene White et al tell a story about the problem of counter-party risk in French financial markets, and how attempts to control the problem through self-regulation and imposed regulation led traders to take risky transactions to outside, less-regulated markets.

Simon Johnson: Two types of moral hazard

Incentive to excessive risk-taking and leveraging in the financial sector, for one; and by government, for another type of moral hazard. Two prominent positions in the public debate over the establishment of the Federal Reserve drew attention to these: Louis Brandeis on the Pujo Committee; and Nelson Aldrich. The present-day problem of Ireland and that of Greece.

Central banks: independent within government?

Bloomberg posted a story a few weeks ago now. It’s old news but still fresh. The Fed is more of a independent, yet political animal than many realize.

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Moneyball talks

The two characters who bet most on the idea of moneyball got it wrong when they talked about it, at times. Peter Brand to Billy Beane: ‘You’re not doing it for the money. … You’re doing it for what the money says. And it says… well it says, that any player that makes big money, that they’re worth it.’

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Links: Politicized Central Banking, the French Revolution, and Funny Honey

A few pieces that I’ve learned from recently:

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Democracy Debased

Ludwig von Mises, writing* after World War I, explains the hazard of leaving to democratic decision-making the definition of a monetary rule:

All attempts to put something better in place of the gold standard must fail because the price-index system provides no clear solution and because conflicts between interested parties would inevitably break out about which of the many possible solutions to use that would never leave the economy in peace. It would be an intolerable situation if we had to carry on discussions forever and ever about whether at every instant measures for the raising or lowering of value of the currency were to be recommended or rejected.

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